Al­leged Flip­pers Blast SEC

The Bond Buyer - - Front Page - By Kyle Glazier

WASH­ING­TON - The Se­cu­ri­ties and Ex­change Com­mis­sion en­gaged in a “gross abuse of power” by ac­cus­ing Michael and Jo­ce­lyn Mur­phy of flip­ping bonds when they acted no dif­fer­ently from other in­vestors and acted in good faith at all times, their lawyers told a fed­eral court this week.

The Mur­phys, who live in Den­ver, Colo. ac­cord­ing to the SEC com­plaint, filed their ar­gu­ments against the SEC in U.S. Dis­trict Court for the South­ern Dis­trict of Cal­i­for­nia in San Diego on Mon­day. The pair stand ac­cused of par­tic­i­pat­ing in a mu­nic­i­pal bond flip­ping and kick­back scheme in which they al­legedly mis­rep­re­sented them­selves as re­tail in­vestors in or­der to buy and quickly sell or flip the se­cu­ri­ties for a profit. Most of the sev­eral other in­di­vid­u­als charged in the case in Au­gust set­tled with the SEC, but the Mur­phys have cho­sen to fight

it out in court.

The SEC charged both Jo­ce­lyn and Michael Mur­phy with act­ing as un­reg­is­tered bro­ker-deal­ers and also said Jo­ce­lyn com­mit­ted fraud.

The two al­legedly par­tic­i­pated in a years-long scheme stretch­ing from about 2009 to 2016 in which a num­ber of in­di­vid­u­als placed new is­sue or­ders pre­tend­ing to be lo­cal re­tail in­vestors in or­der to ob­tain pri­or­ity dur­ing re­tail or­der pe­ri­ods.

But the SEC said those peo­ple, in­clud­ing al­legedly the Mur­phys, were as­so­ci­ates of un­reg­is­tered bro­ker-deal­ers.


Af­ter ac­quir­ing the bonds, the SEC claimed, the de­fen­dants quickly resold them to bro­ker-deal­ers, typ­i­cally for a fixed, pre-ar­ranged com­mis­sion, and then sought to con­ceal the flip­ping ac­tiv­ity from is­suers and un­der­writ­ers.

The tac­tics in­volved in­cluded al­legedly pro­vid­ing in­ac­cu­rate zip codes on the or­ders.

The SEC com­plaint states that Jo­ce­lyn Mur­phy placed or­ders in both Cal­i­for­nia and Puerto Rico in­di­cat­ing that she was lo­cated in each place and that the bonds were be­ing pur­chased on be­half of re­tail cus­tomers.

In fact, the SEC said, she was act­ing on be­half of an un­reg­is­tered San Diego-based bro­ker-dealer called RMR As­set Man­age­ment Co. and her or­ders were al­ways in­tended to be re-sold to deal­ers.

Both Mur­phys pre­vi­ously held bro­kers’ li­censes but not dur­ing this time.


At­tor­neys Robert Knuts of Sher Tre­monte in New York and Thomas D. Mau­riello of the Mau­riello Law Firm in San Diego of­fered firm de­nial of the SEC’s charges in their Oct. 29 re­ply.

“Mr. and Mrs. Mur­phy acted in good faith at all times and they specif­i­cally deny any al­le­ga­tion to the con­trary, Knuts and Mau­riello wrote. “As will be proved at trial (if a trial is even nec­es­sary), Mr. and Mrs. Mur­phy pur­chased and sold se­cu­ri­ties in U.S. pub­lic se­cu­ri­ties mar­kets at their own eco­nomic risk, trad­ing prof­itably on many oc­ca­sions and los­ing money at other times.”

The de­fense re­ply ac­cuses the SEC of se­lec­tively tar­get­ing the Mur­phys in an ef­fort to en­force a pol­icy change through en­force­ment rather than a proper rule­mak­ing process, call­ing it a “gross abuse of power.”

“The truth is that Mr. and Mrs. Mur­phy, like hun­dreds (if not thou­sands) of other small, in­di­vid­ual in­vestors have played an im­por­tant role in the is­suance and distri­bu­tion of se­cu­ri­ties in the United States, in­clud­ing se­cu­ri­ties is­sued by mu­nic­i­pal­i­ties,” the de­fense wrote.

“If the SEC now be­lieves that this eco-sys­tem, which has op­er­ated suc­cess­fully for decades, needs to be changed, the proper way to ef­fect that change would be for the SEC to pro­pose and en­act new rules to gov­ern the se­cu­ri­ties mar­kets af­ter re­ceiv­ing com­ments from all mar­ket par­tic­i­pants.”

One other de­fen­dant, Richard Gounaud, is ask­ing that his trial be moved to his home state of New Jer­sey due to health is­sues. If the Mur­phys do pro­ceed to a trial, it likely would not take place un­til at least late 2019, ac­cord­ing to a source fa­mil­iar with the mat­ter.

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